COMMODITIE NEWS 10.07.2012:- It's not hard to find bearish views on the steel industry, given renewed recession in Europe and slower growth in China, but these seem in contrast to the resilience in the iron ore market.
China's steel production and consumption is maturing and unlikely to witness rapid growth in the future, while Europe's steel industry is in terminal decline and three-quarters of its capacity may be shut in the next two decades, Wolfgang Eder, the head of European steel body EuroFer said recently .
Views such as Eder's are becoming more widespread and there is much more talk of "peak steel" , when demand reaches a plateau, most likely leading to excess capacity and declining prices for both steel and its main raw material , iron ore.
Peak steel is premised more on a limit to demand growth as opposed to the largely discredited peak oil theory, which postulated that supply would be unable to keep up with consumption. But, as with the peak oil theory, peak steel has its weaknesses, assuming no technological progress and no ability of suppliers to respond to slower demand growth.
It is logical to assume that China won't continue to post double-digit growth in both iron ore imports and steel production indefinitely, but given the high rates of the past decade, even small increases in percentage terms result in large changes in actual volumes. It is probably this dynamic that has underpinned the iron ore market so far this year.
Spot iron ore in Asia is down only 2.5% in year-to-date terms at $135.10 a tonne, compared with a drop of 8.5% for Brent oil and 6% for the Thomson Reuters-Jefferies CRB Index.
On the face of it, it doesn't appear to make much sense that iron ore is outperforming crude at a time of slowing world growth, led by concerns over the state of China, while at the same time oil demand remains in positive territory and there are significant geopolitical risks over Iranian supplies.
However, China's economic slowing has yet to translate to steel output, which is still hovering around 2 million tonne a day, a level that has been fairly constant since April and is well above the levels just under 1.7 million tonne a day that prevailed for the first two months of the 2012.
Iron ore imports are up 8.9% in the first five months of 2012 over the same period last year, on track to comfortably beat the estimate of 6% full-year growth made by analysts in a Reuters survey in December. If the pace of imports continues, China will bring in 740 million tonne of iron ore in 2012. Even if imports slacken back to 6% growth by the end of the year, China will still buy 728 million tonne of the raw material.
The lower import figure still results in average monthly imports of 59.9 million tonne for the Juneto-December period, not far below the 61.7 million tonne achieved in the first five months.
(NEAL BHAI 9999974733)
